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Square Peg Capital raised a US$180 million fund for startups earlier this year. The Australia-headquartered VC has investments in its home country as well as in Southeast Asia, Israel, and the US. Its portfolio includes an early small stake in Uber, Australian graphic design firm Canva, and Singapore’s PropertyGuru, Chope, and Wego.

Paul Bassat, Square Peg’s managing partner and co-founder, is an entrepreneur himself, having co-founded jobs site Seek in 1997. And before he invests, the last thing he wants to hear from founders is their company’s valuation.

In Bassat’s mind, an entrepreneur who’s too eager to push a number on investors risks putting them off, as they might find the proposed valuation too high. Then, if the entrepreneur haggles, investors might think this sounds too desperate or betrays lack of confidence in the initial proposal.

“Raising money is as much about psychology as anything else,” Bassat tells Tech in Asia. Also, if investors value your company at a certain amount and you come to them with a lower price in mind, it’s your loss. “I just don’t think you’re doing yourself any favors,” he notes.

More importantly, that’s not what you should be focusing on as a founder, he adds. “We want to meet folks who are just passionate about running the business. So there’s a little bit of a turn-off when they come along with valuation comparatives and talk more like investment bankers.”

Growth potential

Square Peg invests in technology businesses that can target markets with high potential and address real problems in them. In Southeast Asia, the VC has invested in property portal PropertyGuru and travel search engine Wego. Most recently, it funded restaurant finder Chope and services marketplace Kaodim.

The VC’s 27-strong portfolio also includes payments provider Stripe, US-Israeli big data weather predictor ClimaCell, and freelance services marketplace Fiverr. It’s had one exit so far, with Texas-based logistics software builder Shipping Easy selling to competitor Stamps.com for US$55 million last year.

“[These companies] have platform or marketplace dominance to them,” Bassat says. “They are very, very scalable businesses. We love scalable businesses. And that’s not just financial scale, it’s organizational scale.”

You have a list of things that you want to do. On most days, you can’t get to any of them.

This means that as the business grows larger, it doesn’t get proportionately harder to manage. “Contrast that with ecommerce-type businesses, where the level of complexity just keeps growing and growing as the company gets bigger and bigger,” he explains. “The number of agents [on PropertyGuru] has probably doubled since the time we’ve been involved in the business. It’s not two times more complex to deal with double the number of agents.”

A common refrain of investors outside Southeast Asia who hesitate to invest in the region is the lack of local knowledge and presence on the ground. Square Peg counts on the expertise of its portfolio companies instead of trying to learn everything itself. Working with local investors who go into deals with it is also part of Square Peg’s strategy.

“We feel we understand those markets well enough to make investment decisions. But in terms of actually executing and running a business day to day, we’re relying on incredible local knowledge and expertise,” Bassat says. “And what we bring perhaps in this case is strong domain expertise in terms of understanding how to scale marketplace businesses.”

To accomplish this, Bassat tries to keep his hands off the wheel when working with a portfolio company. “The way I think about our role is to push and challenge if we do have questions. But ultimately, it’s really to back management,” he says. “And it’s very, very easy as a former CEO sitting on the board to think, ‘Oh, why can’t they do this?’ or, ‘This is easier. Why can’t they do more things?’”

Since Bassat was a CEO himself between 1997 and 2011, he has an idea of the challenges in store. “You wake up in the morning and arrive at work. You have a list – maybe a mental or a written-down one – of things that you want to do. On most days, you can’t get to any of them. On a good day, you get to one or two of them, out of the six or seven. And you never finish any of them.”

Plus, the problems that usually reach the CEO are the tough ones. Otherwise, Bassat thinks they would have been solved somewhere along the way.

Cheering from the sidelines

PropertyGuru and Chope appear satisfied with this approach, especially as it helps them build strong management teams. “For example, [when] we brought on a new COO – our most recent hire – the board played a big role in vetting the individual,” Hari Krishnan, CEO of PropertyGuru, tells Tech in Asia.

Krishnan thinks that having an open mind is necessary to be part of PropertyGuru’s board. “We’re not a finished product,” he says. “We continue to grow and learn and develop. So the board really helps set that context and then continues to challenge [them] as they come on board the business.”

“There was a candidate for a senior management position we were assessing,” says Chope CEO Arrif Ziaudeen. “First thing [that Square Peg] did which was helpful was use its own networks to get honest opinions on the candidate that I couldn’t.”

You end up with an outcome that most people around the table are comfortable with because the data tells a story.

More importantly, the investor let Ziaudeen know they trusted his instincts on the candidate. “That’s an important distinction, I think, between helping the entrepreneur think through a particular issue [and] helping [them] think through how to make tough decisions and grow.”

“Like any other groups of people, we have disagreements,” Krishnan adds. “But you can have that constructive disagreement and debate and keep it in a good place if you build relationships. When I read about backseat driving in articles, I often feel there’s been an underinvestment in the relationship. So I don’t take that for granted. There’s a lot of time spent just understanding where my expectations are at, where are people at – not just the board, but even with my executive team.”

Disagreements and debates are what informs Square Peg’s relationship with its portfolio companies as well as its strategy. Bassat says the VC does not have a controlling stake in any of its portfolio companies. Instead, it usually takes one seat in their board.

For Bassat, advice from a board member doesn’t have to be gold all the time. “I can think of plenty of examples where we’ve had debates with management teams, and we’ve ended up being wrong,” he muses.

“And there are probably more examples [when] we’ve been wrong than [when] we’ve been right. But most of the time, it’s not so much that someone has got this view and someone else has got that view. You sit, you chat, you debate things, you have a data-driven conversation. And you end up with an outcome, with the view that most people sitting around the table are really comfortable with because the data tells a story,” he adds.

Opportunity abounds

Square Peg usually goes for a 10 to 20 percent stake in the companies it backs. “Maybe 95 percent of the investments we do fit within that model. We think it’s a great opportunity to have that perspective of looking at things more broadly,” Bassat says.

Though he didn’t share specific figures about Square Peg’s investments and returns, he says the VC tries to make a compelling case to its investors on why it can deliver them higher returns than other types of investment.

“We say to our investors that if you invest in Square Peg and we end up giving you back the same returns that you get from the stock market plus a small premium, then really, you shouldn’t be giving us money. Because you’re better off having the liquidity and the benefit of investing in liquid assets if the returns are broadly similar,” he explains.

Square Peg is riding an early-stage wave for growing businesses and markets, Bassat hopes. He offers PropertyGuru as an example, where a large addressable market was ready for property listings and agent services to move online, together with most of that industry’s money.

“That’s exactly the sort of thesis that we like. And that hopefully is going to lead to our investors getting really, really good returns. But they have to be patient because we want to be involved in companies like PropertyGuru for a long time,” Bassat says.

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